What Is Racketeering? Understanding Organized Crime and the RICO Act

Racketeering, a term typically associated with organized crime, refers to illegal activities conducted by enterprises owned or controlled by the individuals carrying out those illegal practices. Members of such organized crime enterprises are typically referred to as racketeers and their illegal enterprises as rackets.

Often associated with the urban mobs and gangster rings of the 1920s, like the American Mafia, the earliest forms of racketeering in America involved obviously illegal activities, such as drug and weapons trafficking, smuggling, prostitution, and counterfeiting. As these early criminal organizations grew, racketeering began to infiltrate more traditional businesses. For example, after taking control of labor unions, racketeers used them to steal money from workers’ pension funds. Under almost no state or federal regulation at the time, these early “white collar crime” rackets ruined many companies along with their innocent employees and shareholders.

In the United States today, the crimes and criminals involved in racketeering are punishable under the federal Racketeer Influenced and Corruption Organizations Act of 1970, known as the RICO Act.

Specifically, the RICO Act (18 U.S.C.A. § 1962) states, “It is unlawful for anyone employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.” 

Examples of Racketeering

Some of the oldest forms of racketeering involve enterprises that offer an illegal service—the “racket”—intended to solve a problem that is actually created by the enterprise itself.

For example, in the classic “protection” racket, individuals working for the crooked enterprise rob stores in a particular neighborhood. The same enterprise then offers to protect the business owners from future robberies in exchange for exorbitant monthly fees (thus committing the crime of extortion). In the end, the racketeers illegally profit from both the robberies and the monthly protection payments.

However, not all rackets use such fraud or deception to hide their real intentions from their victims. For example, the numbers racket involves straightforward illegal lottery and gambling activities, and the prostitution racket is the organized practice of coordinating and engaging in sexual activity in return for money.

In many cases, rackets operate as part of technically legitimate businesses in order to hide their criminal activity from law enforcement. For example, an otherwise legal and well-respected local auto repair shop might also be used by a “chop shop” racket to remove and sell parts from stolen vehicles.

A few other crimes often committed as part of racketeering activities include loan sharking, bribery, embezzlement, selling (“fencing”) stolen merchandise, enslavement for sex, money laundering, murder-for-hire, drug trafficking, identity theft, bribery, and credit card fraud.

Proving Guilt in RICO Act Trials

According to the U.S. Department of Justice, in order to find a defendant guilty of violating the RICO Act, government prosecutors must prove beyond all reasonable doubt that:

1. An enterprise existed;
2. the enterprise affected interstate commerce;
3. the defendant was associated with or employed by the enterprise;
4. the defendant engaged in a pattern of racketeering activity; and
5. the defendant conducted or participated in the conduct of the enterprise through that pattern of racketeering activity through the commission of at least two acts of racketeering activity as set forth in the indictment.

The law defines an “enterprise” as “including any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.”

To prove that a “pattern of racketeering activity” existed the government must show that the defendant committed at least two acts of racketeering activity committed within ten years of each other. 

One of the most powerful provisions of the RICO Act gives prosecutors the pre-trial option of temporarily seizing accused racketeers’ assets, thus preventing them from protecting their illegally-gained assets by transferring their money and property into phony shell companies. Imposed at the time of indictment, this measure ensures that the government will have funds to seize in case of a conviction.

Persons convicted of racketeering under the RICO Act can be sentenced to up to 20 years in prison for each crime listed in the indictment. The sentence can be enhanced to life in prison, should the charges include any crimes, such as murder, that warrant it. In addition, a fine of $250,000 or twice the value of the defendant’s ill-gained proceeds of the offense may be imposed.

Finally, persons convicted of a RICO Act crime must forfeit to the government any and all proceeds or property derived as a result of the crime, as well as interest or property they may hold in the criminal enterprise.

The RICO Act also allows private individuals who have been “damaged in his business or property” by the criminal activities involved to file suit against the racketeer in civil court.

In many cases, the mere threat of a RICO Act indictment, with its immediate seizure of their assets, is enough to force defendants to plead guilty to lesser charges.

How the RICO Act Punishes Racketeers

The RICO Act empowered federal and state law enforcement officials to charge individuals or groups of individuals with racketeering.

As a key part of the Organized Crime Control Act, signed into law by President Richard Nixon on October 15, 1970, the RICO Act allows prosecutors to seek more severe criminal and civil penalties for acts conducted on the behalf of an ongoing criminal organization—the racket. While used mainly during the 1970s to prosecute Mafia members, RICO penalties are now more widely imposed.

Before the RICO Act, there was a perceived legal loophole that allowed individuals who ordered others to commit crimes (even murder) to avoid prosecution, simply because they had not committed the crime themselves. Under the RICO Act, however, organized crime bosses can be tried for crimes they order others to commit.

To date, 33 states have enacted laws modeled on the RICO Act, allowing them to prosecute racketeering activity.

Examples of RICO Act Convictions

Unsure of how the courts would receive the law, federal prosecutors avoided using the RICO Act for the first nine years of its existence. Finally, on September 18, 1979, the U.S. Attorney's Office in the Southern District of New York won the conviction of Anthony M. Scotto in the case of United States v. Scotto. The Southern District convicted Scotto on racketeering charges of accepting unlawful labor payments and income tax evasion committed during his tenure as president of the International Longshoreman's Association.

Encouraged by the conviction of Scotto, prosecutors aimed the RICO Act at the Mafia. In 1985, the highly-publicized Mafia Commission Trial resulted in what amounted to life sentences for several bosses of the infamous Five Families gangs of New York City. Since then, RICO charges have put virtually all of New York’s once-untouchable Mafia leaders behind bars.

More recently, American financier Michael Milken was indicted in 1989 under the RICO Act on 98 counts of racketeering and fraud related to allegations of insider stock trading and other offenses. Faced with the possibility of life in prison, Milken pleaded guilty to six lesser felonies of securities fraud and tax evasion. The Milken case marked the first time the RICO Act was used to prosecute an individual not connected to an organized crime enterprise.

RICO Law and Anti-Abortion Groups

While organized crime is the main focus of the RICO law, one of its most controversial applications involved activities generally believed to be protected by the First Amendment of the Constitution.

In 1994, the U.S. Supreme Court, in the case of National Organization for Women v. Scheidler, ruled that the RICO law could be used to collect civil damages from anti-abortion groups seeking to shut down women’s clinics. In this case, the National Organization for Women (N.O.W.) sued to collect damages from the anti-abortion organization Operation Rescue for allegedly conspiring to obstruct women’s access to abortion clinics through a pattern of racketeering activity including the actual or implied threat of violence. In its unanimous decision, the Supreme Court ruled that the racketeering activity need not have an economic motive.

However, in subsequent decisions, including Scheidler v. National Organization for Women in 2006, a now more conservative-leaning Supreme Court reversed the 1994 decision, ruling 8-1 that Operation Rescue’s anti-abortion protesters had not “obtained” any property of value from the clinics as required under the law to show an act of criminal extortion.  

Sources

• “Criminal RICO: A Manual For Federal Prosecutors.” U.S. Department of Justice, May 2016, https://www.justice.gov/archives/usam/file/870856/download.
• Carlson, K. (1993). “Prosecuting Criminal Enterprises.” U.S. Bureau of Justice Statistics, 1993, https://www.bjs.gov/content/pub/pdf/pce.pdf.
• “109. RICO Charges.” Offices of the United States Attorneys, https://www.justice.gov/archives/jm/criminal-resource-manual-109-rico-charges.
• Salerno, Thomas J. & Salerno Tricia N. “United States v. Scotto: Progression of a Waterfront Corruption Prosecution from Investigation through Appeal,” Notre Dame Law Review. Volume 57, Issue 2, Article 6, https://scholarship.law.nd.edu/ndlr/vol57/iss2/6/.